The Tesla Model X Manufacturing Issues: No Big Deal Long Term

I’ve been covering Tesla a lot at Seeking Alpha. But I hope to start publishing more on my blog along with SeekingAlpha if (big if) I get the time. This might feel a bit out of context, especially since all my blogs are now merged, so I recommend reading some of my Seeking Alpha articles first if you are not familiar with Tesla or my take on the company. You can start here with this article I wrote two and a half years ago.

If you are not familiar with the Model X, it is Tesla’s new large 7 passenger crossover with Falcon Wing doors, possibly the safest and fastest SUV on the planet.

Tesla Model X

Model X Sales Ramp

If you read the news and analysis about Tesla Motors (TSLA), there is widespread doom and gloom, especially about the Model X sales ramp. The Model X is no doubt a complicated vehicle and Tesla has had a lot of trouble producing the vehicle. It brought seat production in-house because suppliers couldn’t make a seat to Tesla specifications. The manufacturer for the mechanism for the Falcon Wing door couldn’t deliver and is currently being sued. In spite of all this Tesla managed over 200 deliveries (actual sales, they produced more) of the car last year and is currently expecting the order backlog to clear by summer with new orders expected to be delivered mid-late 2016.

However, the Model X backlog is estimated to be over 20,000 orders. If Tesla manages to clear the backlog by the end of the year and squeeze in a few more orders, it will be the fastest ramped alternative vehicle in history, tying or even beating the current record holder, which is none other than Tesla’s own Model S!

So while people look at the daily news and speculation, Tesla, with all its problems, is expected to pull off a feat that even other established 100 year old manufacturers are unable to accomplish.

Here is what the sales ramps of the Toyota (TM) Prius, Chevy (GM) Volt, BMW (BAMXF) i3 and Nissan (NSANY) Leaf look like compared to the sales of the Tesla Model S and my expectations of 25,000 Model X to be delivered in 2016.

This is in spite of the fact that the Model S and Model X are from a brand new auto manufacturer with no experience making cars. And in spite of the fact that the Model S/X are vehicles that compete in segments with smaller volumes priced at nearly double or more than these competing vehicles. While alternative fuels are not a focus at other companies, with decades of experience, one would think that they can outsell a fledgling automaker with no experience? The comparisons do not end there. With their first sedan and SUV, Tesla has managed to create the longest range EVs, the fast accelerating cars in their segments among other firsts like OTA updates. And Tesla even managed to get a 5* safety rating in all categories for their car, a feat that other manufacturers are not yet able to accomplish across their entire fleets.

2016 Production and Sales

Anyway, so what does this current doom and gloom mean this year? I expect Model S sales to remain stable at 50,000 and Model X sales to be around 25,000 bringing the total to about 75,000 for the year. This represents approximately 50% unit growth. I also expect Model S average selling price (ASP) to remain stable and Model X ASP to be well over $100,000 as most of the units delivered this year are expected to be loaded. So I expect revenue growth to be over 50%.

Tesla’s own estimate is production (not sales) of an average of 1600-1800 cars/week, but I currently do not expect them to reach that kind of number until the second half of the year. I’m assuming that as volume rises, sales numbers will closely track production numbers. Even if not, Tesla generaly empties inventory in some quarters (like Q4 last year) and sales catch up with production. For the first half, I expect sales numbers similar to Q4 production at around 15000 a quarter, giving us about 30,000. After that I expect Model X production issues to be sorted out and volume production to begin and I expect another 45,000 sales during the second half.

Catalysts for the Stock

CPO: Q4 2015 was the first time Tesla sold more than a handful of Certified Pre-Owned (CPO) cars and since then Tesla has had a steady stream of available cars to sell. During earnings, I expect some more color on the profitability of this program.

Energy Storage: As Tesla ramps up production of their energy storage products – the Powerwall for residential storage and the Powerpack for commercial/utility scale storage, this business is expected to add to both the top and bottom line. I expect the guidance for this business to be robust as Tesla’s Gigafactory in Nevada starts pumping these out in volume.

Model 3: There is a lot of scoffing at the Model 3 and not enough scoffing at Porsche’s (POAHF) 2020 competitor to the 2012 Model S or the Batmobile from Faraday Future, a Chinese funded startup in Nevada. However, the expectation is that pre-orders for the Model 3, expected to begin late next month will be off the charts. I’m one of those who will pre-order.

Model X Reviews: Model X reviews have not yet started showing up but the expectation is they will be glowing like the Model X. The car stole even Bentley’s thunder, with faster acceleration. This year the Model X is likely to get rave reviews and win awards galore as a one of a kind green SUV-supercar.

As I write this the stock is at 52 week lows and the stars are expected to align this year from several expected catalysts for Tesla. I’m adding more at every opportunity because I expect Model X issues to be resolved soon and all the other catalysts to help propel the stock upward long term. In the early days of the Model S, these same worries persisted as for the Model X, that Tesla wouldn’t be able to make the car, wouldn’t be able to sell the car. And now the Model S is the top selling luxury car in its segment. More of the same is in the cards for the Model X.

Disclosure: We are long TSLA.

Getting Solar Panels in Charlottesville

As I write this, our 6.9kW Solar Panel system is almost ready to go, pending Dominion installing a new meter. I’ve written before about the economics of solar power and how they make financial sense even in a state like Virginia with no incentives. I’ll talk about the power production from the panels a little later. First, I’ll go about the shopping process. All prices below are before federal rebate.

Solar Panels

To start with I emailed or called almost every solar installer I could find that worked in Charlottesville – Altenergy, Sigora Solar, Genesis Home and Energy, Solar Connexion, Baker Renewable Energy, Entero Energy and some more that I can’t recall.

I got initial quotes from everyone and they ranged from ballpark estimates of $3.50/W – $5/W installed for a 5kW system. Eventually, after some negotiation and attempting to maximize the system in our budget, I got prices ranging from $2.50/W – $3.10/W from my top three choices based on the responses I received.

The first was Solar Connexion, based out of Blacksburg. Their quote was the highest of the three but they have been in business the longest and offered the longest workmanship warranty on their work. They offered me a choice of various panels from LG Monocrystalline Panels to Chinese Polycrystalline panels. However, they did not do micro-inverters. For slightly over our 3$/W approximate budget, they could give us 20x260W LG Mono panels or 22x240W Trina panels. They wouldn’t do >300W panels because they didn’t want to deal with the larger physical size.

The second was Sigora Solar. They exclusively offered SolarWorld Mono Panels and offered the second longest workmanship warranty. They initially offered 220W Panels and if those suit your need, I’m sure they can get you a fantastic deal on those. But after some negotiation and research, they offered me some very nice 270W Mono panels for a very good price, slightly under the price/W that Solar Connexion offered. They also do not do micro-inverters.

However, we finally ended up going with Genesis Home and Energy because Randy from Genesis was flexible with designing a system in any way we wanted. He offered us the widest possible choice of panels to use with either string or micro-inverters and gave us pricing for both options with various different panels. He was willing to use any top-tier manufacturer panel that was currently available on sale. He managed to find us a great deal on 315W JA Solar panels and came in significantly under the price of the other two. In fact, our price with micro-inverters would have been comparable per Watt with the other two. But thanks to the great deal on the panels, we decided against micro-inverters, instead going for more wattage. Randy also used a PowerOne dual MPPT inverter, instead of a Sunnyboy, which seems to be the most popular choice, because it treats the panels like two independent strings. Even with the SolarWorld 270W mono panels, which friends of ours are also getting from Genesis, their price was well under the other two.

Now that the shopping is done, on to power production from the panels. On average we use about 1200kWh/month (taken from the last one year of data, this is higher than usual thanks to the current insane winter – one year monthly average before this winter was 1030kWh). According to PVWatts, the system will generate about 725kWh/month or 60% – 70 % of our energy usage.

Since we are in the Dominion Solar Purchase Program, our payoff for the panels (using price after Federal rebate) is about 10 years. The chart below assumes that the Solar Purchase program will no longer exist after five years. It assumes 0.7% annual panel output degradation and 3% increase in the price of electricity every year.

If you are considering the Dominion Solar Purchase program, you need to act quickly. They only have about 50kW of additional space in the program as of this writing. If you are unable to get into the Solar Purchase program, the payoff increases to 12 years. Still assuming 0.7% panel degradation and 3% electricity rate increase.

Tech Titans: Performance Of Google Vs Apple Vs Microsoft

There was a time in 2012 when people were betting on Apple (AAPL) stock to reach $1000 before Google (GOOG). Since then Apple is down from it’s over $700 peak while Google is making new highs over $1000. In the mean while, Microsoft (MSFT) stock is up about 40% in one year while Apple is essentially flat.

So what changed? Which stock looks the best going forward? These are the questions I hope to answer with this article by looking at revenue and earnings growth for all three.

Revenue

5 year TTM Revenue change charts for Google show that in the last five years, Apple has handily beat both Google and Microsoft. But from the chart, it looks like Apple’s growth has flattened, while it hasn’t for the other two.

GOOG Revenue (TTM) Chart

Looking at the last one year, it seems both Google and Microsoft have Apple beat for revenue growth.

GOOG Revenue (TTM) Chart

Earnings

Apple’s 5 year earnings growth is equally impressive:

GOOG EPS Diluted (TTM) Chart

However, the last one year has been even worse for Apple earnings than it was for their revenues while Microsoft and Google have shown much better progress. Especially Microsoft.

GOOG EPS Diluted (TTM) Chart

Apple

So what happened at Apple? Well the answer to that is simple. Apple’s growth was tied mainly to the demand for iPhones and then iPads. In the last few years, Apple’s improvements to the iPhone have been incremental from the user perspective, especially considering the dramatic improvement in Android phones. The iPad also now has significant competition from other tablets.

The iPhone was introduced in 2007, the iPad in 2010. In theory, to keep up that spectacular growth that Apple has been enjoying, it would have made sense to launch a new line of products – an Apple television set or a significantly redone and completely re-imagined “magical” Apple TV box. Or something else.

Alternatively, Apple could have stepped up the competition by introducing a larger variety of phones, tablets and computers in different sizes. With it’s vast resources and ungodly amount of money Apple could have executed its product strategy better.

Apple is trying to improve margins by selling a premium priced, yet not made from the usual premium materials, iPhone 5c. It also marks a departure from their usual tactic of just making the previous generation the cheaper model. My personal opinion is that if they had kept the old iPhone 5 alongside the new iPhone 5s, nobody would have paid extra for the iPhone 5s. After all as far as the user goes, the only meaningful difference is the fingerprint sensor. I can’t imagine anyone paying $100 for that.

For the next iteration of iPhones, what I would like Apple to do, is have two product lines: the normal line and the “c” line and give the user screen size choices in both lines like this:
Normal Line: iPhone 6-4, iPhone 6-5 with the only difference being the screen size, the rest of the internals being the same
“c” Line: Similarly iPhone 6c-4, iPhone 6c-5 and if they really want to keep their low end phone as a 6c-3.

The iPhone just looks dated compared to the new 1080p screen 5″ phones from the competition. Similarly with the iPad. Keep the specifications of the 10″ and the mini the same except for screen size.

For computers, Apple really needs to start competing with convertible ultrabooks.

Short term, Apple will probably get a significant boost from it’s deal with China Mobile and the launch of the new iPads and iPhones in this quarter and I expect the negative EPS growth trend to slow down, if not reverse.

Google

As evidenced from the charts above, Google’s revenue and EPS have continued to grow steadily for the last five years and unlike Apple, there has been no perceptible slowdown in growth. Google is the undisputed leader in web search, online advertising and mobile advertising. Google also is the most innovative company on the planet, period. Also, Google brings in 10% of total worldwide advertising dollars. That includes all forms of advertising, not just internet based. Google is the undisputed leader of web adertising and also owns half of mobile ad revenue.

Unlike Apple, which focuses on a few products and services, Google goes in all directions at once, sees what sticks, and then develops on that. This makes Google a very agile company to meet customer needs. What makes Google unique is their acceptance of out of the box ideas, even in non-core areas such as self driving cars, being an ISP, generating green power etc.

Also finally, the fruits of their Motorola acquisition can be seen with the new Moto X and Moto G phones.

Going forward, I expect the same level of growth from Google as they take more global advertising dollars, launch more products and services and take market share from other online services like Facebook and enterprise products from Microsoft.

Microsoft

For someone who follows the media, the charts for Microsoft would be surprising. All we hear is that nobody wants a Windows Phone, Office products are being replaced by the cloud, mobile devices are eating Windows market share. But in spite of all this, Microsoft has surprisingly manage to grow both revenues and profits!

Microsoft also followed Google’s footsteps in acquiring a phone company, Nokia (NOK) and I think that is a great step forward for Microsoft as it attempts to compete with Apple and Google. I have covered Microsoft before and presented the view that Microsoft is the one company that competes with almost every tech company in some way and with the Nokia addition they just added to that list.

Even though the changed in Windows 8 were very unwelcome, I think Microsoft’s new unified strategy is a big step forward with one “Modern” interface across all product lines. I’d say it was the opposite of too little too late – too much too early.

Looking forward, with growing Windows Phone market share, growingenterprise product market sharesucces of the XBox One and growingBing market share – at the expense of Yahoo (YHOO), a growing cloud presence, fantastic new convertible Ultrabooks running Windows Microsoft seems to be turning around and their stock performance from this year might continue.

The Numbers

P/E P/S Ex Cash P/E Dividend
Microsoft 13.74 3.87 10 3%
Google 28.87 6.23 25.5
Apple 13.95 2.95 9.5 2.3%

It looks like Apple and Microsoft are currently similarly valued by earnings and Google is valued over twice as much. We can see that Google’s growth is steadier and higher than the others (with the exception of TTM EPS growth by Microsoft). This just about justifies the P/E premium that Google commands. Amongst Apple and Microsoft, the numbers logically make Microsoft seem the better bet for now. However, the impact of Apple’s new products remains to be seen.

Longer term, Apple needs a new line of products or significantly more diversification in their existing product lines. Just financial engineering as suggested by Carl Icahn is a mere distraction. Apple needs to get back to growing earnings and revenue.

Disclosure: Long AAPL, GOOG. May open a position in MSFT

The Tale Of Three Loss Making Hot Stocks – Pandora Vs Twitter Vs Tesla

Pandora (P) is in the business of online radio. Twitter (TWTR) is in the business of communication via microblogging. Tesla (TSLA) makes cars. That’s where the dissimilarity ends and the similarity starts. All of them are hot tech stocks (yes I called Tesla a tech stock). None of them are profitable yet (except Tesla on a non-GAAP basis). Tesla went IPO in 2010, Pandora went IPO in 2011 and twitter went ipo a few weeks ago. From 2010 – 2012, all three showed similar revenue growth. All of the estimates for 2013 are based on reports for the first few quarters and estimates for the remaining quarters. For Twitter, I estimated revenues and losses by just doubling the first two quarters. For Pandora I doubled revenues and for losses, I used data from a previous article. For Tesla I used 4/3 * first three quarters.

However, as far as losses go the picture is not so similar:

We can already begin to see how Twitter doesn’t particularly paint a good picture. The other two seem to be reducing losses significantly.

From my previous article on Pandora, it is obvious that the path to profitability for Pandora is only becoming smoother in 2013.

2013 for Tesla, was a great year where they finally started delivering cars in volume (on track for 21,500 Model S delivered this year). I have covered Tesla extensively before.

The picture for Twitter is unknown. It has grown revenues significantly in 2013 but profitability seems out of reach. Pandora revenues come from both advertising and subscriptions. Twitter, on the other hand, solely relies on advertising. Also, Pandora advertising is fairly unavoidable – ads are forced listen. Twitter, in comparison, by design is difficult to advertise in, especially on mobile devices where a majority of their customers are. In fact twitter started out by using SMS, where it is inherently difficult to advertise in the limited space.

Looking at the numbers (on 11/20):

Twitter Pandora Tesla
P/S 43.8 9.5 8.71
Market Cap 22.3B 5B 14.9B

It is fairly obvious that for companies with sort of comparable revenues and revenue growth, Twitter is wildly overpriced compared to both Pandora and Tesla. If anything, Twitter should be worth much less than the other two.

As of now, Tesla stock is depressed from highs thanks to adisappointing quarterly report, media attention to Tesla cars on fire and an accident at its factory. Pandora is hitting new highs thanks to analyst upgrades. Twitter stock direction is currently flat to slightly down from its IPO but I’m predicting a slow downward movement.

So if you were thinking of adding a hot tech company to your portfolio and were considering Twitter, thanks to the hype – maybe you should consider Pandora or Tesla instead.

Disclosure: Long TSLA

My Thoughts On Pandora

Over the last few days, I’ve worked on analyzing Pandora as an investment.

See my thoughts here:

When And What Would It Take For Pandora To Be Profitable + Earnings Expectations – I attempt to predict when Pandora will be profitable and what it can do to be profitable.

An Analysis Of Pandora Before Earnings – I look at statistics of Pandora listeners, market share and other related statistics.